Emerging equity markets in a globalizing world

Given the dramatic globalization over the past twenty years, does it make sense to segregate global equities into “developed” and “emerging” market buckets? We argue that the answer is still yes. While correlations between developed and emerging markets have increased, the process of integration of these markets into world markets is incomplete. To some degree, this accounts for the disparity between emerging equity market capitalization ininvestable world equity market benchmarks versus emerging market economies in the world economy. Currently, emerging markets account for more than 30% of world GDP. However, they only account for 12.6% of world equity capitalization. This incomplete integration along with the relatively small equity market capitalization should betaken into account in portfolio allocation. Other asset classes within emerging markets (such as corporate bonds and currencies) are also viable.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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